Proper record retention is an essential part of any unclaimed property compliance program. Not only do state laws require holders to retain appropriate records, but doing so also provides an audit defense and can help avoid the use of estimation for determining unclaimed property liability.

“All states have some kind of requirement as it relates to the retention of unclaimed property records,” said Laurie Andrews, CFE, senior manager for Keane. “Failure to maintain those records can cause problems. In the event you are audited, it will make the audit much more burdensome and lead to extrapolations for periods where your records are unavailable. It’s far easier to keep and maintain records than to try to find them or recreate them when faced with an audit.”

Retained records are intended to demonstrate a holder’s historical compliance efforts. Records created at the time of reporting and properly maintained meet the burden of proof when being audited and provide a more powerful audit defense.

As with all areas of unclaimed property compliance, requirements for record retention vary from state to state. The Revised Uniform Unclaimed Property Act, which provides model requirements for states to consider, calls for holders to retain:

Information required to be included on the report by state law.

The date, place and nature of circumstances giving rise to the owner’s property right.

The value of the property.

The last address of the owner, if known.

For traveler’s checks, money orders, or similar instruments, the record of the state and date of issue.

In the event of an audit, unclaimed property holders need records to demonstrate compliance for a lookback period that often spans the dormancy period plus 10 years—sometimes longer, depending on the state conducting the audit.

Holders can take several steps to maintain effective record retention practices. In addition to generating and maintaining good records, indexing them effectively helps ensure you or future employees can locate them when needed.

“It can be tough understanding and recreating records from a period when you weren’t involved in the process,” Andrews said. “When you’re creating, filing or indexing records, think of the people who will be reviewing them many years from now. If you maintain records with no supporting documentation or explanation, it’s going to be difficult for your successor to understand the historical data.”

Include record retention documentation within company policies and procedures. The unclaimed property compliance team may understand the need for maintaining specific records, but others may not. This could lead to record destruction practices that unintentionally increase unclaimed property risk.

Develop and enforce policies that protect records from destruction and alteration. If information needs to be added to records, it should be done in the same location where the records are stored. If the record exists in both a hard copy and electronic copy, added information should be attached to both.

If a third-party administrator manages the escheatment process, request and maintain copies of unclaimed property reports filed on your behalf. The holder is ultimately responsible for compliance and needs to ensure such records are properly retained.

Annually review record retention policies and periodically communicate them to anyone involved. Doing so helps ensure procedures stay current with changing requirements and that employees don’t forget about the importance of unclaimed property records. Occasionally verify that proper record backup processes are in place, reducing the threat of losing valuable data.

While all of this effort to retain records may seem daunting, evaluate the cost of retention versus the audit exposure created by not retaining records. Developing, following and monitoring record retention procedures may seem daunting, and storing records for long periods of time can be costly. However, the potential liability created when records are unavailable, and the effort required to recreate them when an audit occurs, likely make the cost and effort worthwhile.

For additional insight into record retention, attend the Technology & Record Retention and Developing Your Policies & Procedures sessions at the UPPO Annual Conference, March 4-7, 2018, in Tampa, Florida.